The OPEC+ unexpected decision to increase production not only failed to lower oil prices but also triggered a new intensification of the global crude oil market share competition. Behind this abnormal phenomenon lies a reflection that the global oil supply and demand balance is tighter than the surface data shows, as well as a fundamental shift in the strategic focus of oil-producing alliances.

According to a previous article by Wall Street Insight, last weekend, OPEC+ agreed to increase crude oil production by 0.548 million barrels per day in August, far exceeding the previous months’ increase of 0.411 million barrels per day. However, international oil prices rose instead of falling, with WTI Crude Oil and Brent Crude Oil both rising to two-week highs. Analysts believe that this ‘super-increase’ is actually a clear signal sent by OPEC+ to its competitors.

Stephen Innes, a partner at SPI Asset Management, stated that this astonishing increase in production is ‘not just a number, but a declaration.’ OPEC+ has abandoned its refined price management strategy and is instead ‘seizing market share through the number of barrels produced.’ The organization plans to completely reverse the voluntary production cuts of 2.2 million barrels per day made last year by September, a full year ahead of expectations.

Meanwhile, analysts point out that the current tension in the oil market may be seriously underestimated. Although surface data shows a relative balance between supply and demand, several key indicators indicate that actual supply is tighter than official statistics.

In recent months, the reliability of traditional market indicators has been challenged. The diesel price spread, historically viewed as a reliable indicator of market supply and demand and economic growth, has become distorted due to factors such as extreme weather. Additionally, refinery capacity shrinkage has reshaped the supply and demand landscape.

The US shale oil industry is under significant pressure.

The US shale oil sector is facing production bottlenecks, creating opportunities for OPEC+ to regain market share. Data from the US Energy Information Administration shows that falling oil prices have led to a slowdown in drilling activities among US producers, with the agency lowering its forecast for average daily crude oil production in the fourth quarter of 2026 to below 13.3 million barrels.

Baker Hughes data shows that the number of active oil rigs in the US has dropped to 425, the lowest level since October 2021, significantly lower than the peak of about 780 rigs in 2022. City Index and FOREX.com market analyst Fawad Razaqzada pointed out:

When the WTI Crude Oil price is at $60/barrel, US oil rigs can remain operational, but when the price drops to $50/barrel, “the oil fields will fall silent.”

According to Analyst Innes, Opec+ is betting on regaining market share through a price war, “using barrels of crude oil rather than words,” forcing marginal producers out of the market. Given that US drilling activities have failed to achieve the “crazy drilling” expected, this may be the perfect time for Opec+ to increase production as much as possible.

Traditional Indicators face the risk of failure.

Some analysts point out that this winter’s market data reveals the limitations of traditional analysis methods. An unusually high spot premium of about $20/ton emerged when the March ICE Henry Hub Natural Gas oil contract expired, indicating a significant tightening in the spot market. This contrasts sharply with the substantial decline in crude oil parity during the same period, which was mainly affected by the so-called “Trump slump” and the US stock market correction.

The diesel crack spread fell from $21/barrel in mid-February to below $17/barrel, leading some observers to believe that the market is starting to reflect the issue of oversupply. However, a deeper analysis of the current crack spread structure, especially the situation post-winter and the economic benefits for refineries, suggests that the fundamentals may not be as pessimistic as indicated by the surface data.

Although the diesel crack spread may have overestimated medium-term oil demand and global economic growth during winter, as the cold weather effects subside, they remain more reliable than crude oil parity. In fact, markets for crude oil, diesel, and other fuels exhibit a spot premium structure, indicating a lack of demand for storing crude oil.

Refining capacity contraction reshapes the supply-demand landscape.

Refinery margins provide another key signal. Despite facing broader economic concerns, margins remain at historically healthy levels, even after the diesel crack spread suffered a sell-off due to market sentiment. The high sulfur fuel oil and naphtha crack spreads are also strong, indicating a need to maintain high refinery utilization rates.

Europe is about to lose about 0.4 million barrels per day of refining capacity, including the closure of Grangemouth and several German refineries. In the US, LyondellBasell’s Houston refinery has already ceased production, and more shutdowns may occur on the US West Coast later this year.

One of the key unknown factors in the coming months is the extent to which the impact of refinery closures has been absorbed by the market. While traders are actively considering expected changes, the full impact of these shutdowns may not be apparent until inventory levels begin to decline.

Geopolitics and demand prospects support rising oil prices.

In addition to the competition for market share and tightening fundamentals, geopolitical factors also provide significant support for oil prices. A 12-day conflict between Israel and Iran in June caused Brent crude to soar more than 30% in three weeks, but it subsequently fell back due to US airstrikes on Iran and the subsequent ceasefire.

Innes emphasizes the continuous impact of geopolitical tensions on the oil market. Additionally, the recurring situation in the Red Sea is affecting global supply chains, as the Suez Canal trade route has been closed due to attacks by Houthi forces, significantly extending the time for diesel transportation to Europe.

Meanwhile, the improvement in the global oil demand prospects has also driven oil prices higher. Since April, concerns about trade and inflation have eased, and the S&P 500 Index and Nasdaq have rebounded sharply from the lows in April, recently reaching all-time highs. Razaqzada points out:

Previously, the market worried that trade disputes would harm the global economy and drag down oil demand, but these concerns have “dramatically faded.” Inflation has not risen sharply as expected due to high tariffs, many central banks continue to cut interest rates, and the Trump “Great Beautiful Plan” passed by Republicans is expected to boost the economy in the short term.

Finally, strong demand during the summer driving season also provides seasonal support for oil prices. However, despite the recent rise in oil prices, Crude Oil is still down 4.7% this year, indicating that the market is still seeking a balance.

Editor/melody